BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION
450 N Street, Room 121
Sacramento, California
REPORTER'S TRANSCRIPT
MARCH 24, 2010
ITEM C1
SALES AND USE TAX APPEALS HEARINGS
PETITION FOR REDETERMINATION
filed by
MACROMEDIA, INC.
(Case No. 461946 BH )
Reported by: Beverly D. Toms
CSR No. 1662
1
1
2 P R E S E N T
3
4 For the Board Betty T. Yee
of Equalization: Chair
5
Jerome E. Horton
6 Vice-Chair
7 Barbara Alby
Acting Member
8
Michelle Steel
9 Member
10 Marcy Jo Mandel
Appearing for John Chiang
11 State Controller (per
Government Code
12 Section 7.9)
13 Diane Olson
Chief, Board Proceedings
14 Division
15
For Board of David Levine
16 Equalization Staff: Tax Counsel IV
17
Scott Lambert
18 Tax Counsel
19 Robert Tucker
Legal Department
20
Kevin Hanks
21 Sales and Use Tax Department
22
For Petitioner: Sonja Johnson
23 Tax Senior Manager
24 Purva Samant
Tax Analyst
25
Tran Nguyen
26 Tax Manager
27 ---OOO---
28
2
1 Sacramento, California
2 March 24, 2010
3 ---oOo---
4 MS. OLSON: Good morning, Madam Chair and
5 Members. For this morning's meeting we have four Sales
6 and Use Tax hearings. The first one is Macromedia.
7 Board Proceedings has received contribution
8 disclosure forms for this morning's hearings from the
9 parties, agents and participants. All forms were
10 properly completed and signed. No disqualifying
11 contributions were disclosed. All parties, agents and
12 participants are on the Alpha listing provided to your
13 office.
14 Each person sitting at the table will be asked
15 to introduce themselves and if necessary their
16 affiliation with the taxpayer for the record.
17 Ten minutes is allocated for the taxpayer's
18 opening presentation followed by ten minutes for the
19 Department's presentation and five minutes is allocated
20 to the taxpayer for rebuttal.
21 Ms. Yee.
22 MS. YEE: Thank you very much, Ms. Olson.
23 Okay, Members, we are on item C1, Macromedia,
24 Incorporated. Let me have Mr. Levine with the Appeals
25 Division introduce the matter. Good morning.
26 MR. LEVINE: Good morning, Madam Chair. Good
27 morning, Ms. Alby and the old time members.
28 David Levine for the Appeals Division. The
3
1 issue in this petition of Macromedia, Inc. is whether
2 various audit adjustments are warranted.
3 MS. YEE: Okay. Thank you very much. Good
4 morning.
5 MS. JOHNSON: Good morning.
6 MS. YEE: Thank you for your patience. If you
7 will each introduce yourselves for the record, you have
8 ten minutes for your presentation.
9 MS. JOHNSON: Okay. My name is Sonja Johnson.
10 MS. YEE: Okay.
11 MS. JOHNSON: I am -- I work for Adobe Systems,
12 Incorporated, which purchased Macromedia in December of
13 2005.
14 MS. YEE: Okay.
15 MS. JOHNSON: And I'm a Tax Senior Manager.
16 MS. YEE: Great. Thank you.
17 MS. NGUYEN: Hi. My name is Tran Nguyen and
18 I'm the Senior Tax Analyst for Adobe Systems.
19 MS. YEE: Okay.
20 MS. SAMANT: Hi. My name is Purva Samant. I'm
21 a Tax Analyst for Adobe Systems.
22 MS. YEE: Okay. Very well. If I could ask
23 each of you to just move closer to the microphone so we
24 can hear you better.
25 Thank you. Please proceed.
26 MS. JOHNSON: Okay. Thank you. So, we
27 appreciate your time that you're -- you're considering
28 our case because we know your time is valuable.
4
1 I just want to give you an overview to start
2 with. And I'm very -- I'm very visual so I prepared two
3 graphs and they're -- they're Exhibit 1 and 2. And if
4 we can start with Exhibit 2. I just want to give a
5 history of Macromedia has been audited throughout its
6 lifetime as a company. And in the first years as you
7 would expect, the initial audit -- the blue column
8 represents what our sales tax returns had been and then
9 the -- and the red column is what we agreed to on audit.
10 So in -- in early years -- earliest years
11 there's like a 15 percent adjustment which you'd expect
12 as you're getting to know more about the tax law and how
13 it was being implemented.
14 Then in the next two periods you can see that
15 the compliance has -- has increased quite a bit to 92
16 percent. And then in the last cycle to 99 percent. So
17 really small adjustments in that last period.
18 And then you see this -- now, this new audit
19 coming along where nothing has really changed in the --
20 in the personnel or in anything -- procedures or any
21 sort of tax, you know, systems -- all of a sudden now
22 you have a big drop in what -- what we have compared to
23 versus the adjustment that's being recommended as 17
24 percent.
25 The second exhibit, which is Exhibit 1,
26 demonstrates the types of issues that are being -- that
27 have been gone along in the process. So in the
28 beginning years, let's just take, for instance, the blue
5
1 column which is Use Tax, which we just had a big
2 discussion about, and we can see that we've been
3 educated over the years and that compliance has gone
4 down to almost -- well, to a point where we actually get
5 a refund. And then you see a huge spike in this -- in
6 this audit period thinking, okay, here we've been all
7 educated in what needs to be but the Board -- the
8 Department is -- is coming up with a huge adjustment in
9 this area, an unwarranted one.
10 Same on the disallowed claims for exemptions.
11 It's kind of even throughout the years. This -- this
12 red column represents one -- unique one case situation
13 which Tran is going to get into why that -- the facts
14 they're using is not -- the evidence that they are using
15 is not -- there's more evidence that's on our side than
16 on the -- than we believe is on the Department's side.
17 And then the last one is understating of Sales
18 Tax, which is a brand new issue and never been happened
19 before. And so we want to talk about how that comes
20 into play.
21 So, with that -- so basically what we know from
22 our end is that Macromedia personnel knew the law. The
23 tax systems calculated the tax correctly, knew how to
24 apply the law, and that our audits have been clean. And
25 so from that I'm going to have Tran talk about
26 contention number one, and explain what the evidence is
27 in that -- in that particular situation.
28 MS. YEE: Great.
6
1 MS. NGUYEN: All right. So contention number 1
2 is disallowed claimed sales for resale and this is in
3 regards to the Trustee of the California State
4 University, so this particular customer.
5 So if you guys could turn to Exhibit 4.
6 Exhibit 4 is basically our standard contract agreement.
7 And although we know that, you know -- you know, we
8 shouldn't be really using a standard contract agreement,
9 but we do add additional language for a customer or the
10 Tax Department to include some customization in this
11 agreement.
12 So if you turn to the second page of this
13 agreement, which is going to show you a "Ship to," a
14 "Bill to" address, and the "Ship to" address it's going
15 to be noted as there's nothing there. The only
16 statement there is electronic delivery of software
17 which, you know, is -- you know, on request of our
18 customer. They wanted all their software and all their
19 items purchased by Macromedia to be delivered
20 electronically.
21 We also included in Rider C, which is about
22 four or five pages later that, you know, this is
23 basically for -- from the Tax Department would like --
24 would like to include in these kind of agreements as,
25 you know, some kind of statement, you know, informing
26 our customer that if indeed they decide to, you know,
27 want some kind of tangible personal property that then
28 they will be liable for any Sales and Use Tax because of
7
1 that.
2 I'd like to point out really quick in this --
3 the Rider C, the person named Keith Wandrey, just
4 because he's throughout -- he's going to be mentioned
5 later on, but I want to point his name out just for the
6 record.
7 If you look at a couple more pages, I included
8 also Amendment 5 and 6, both done in 2004 and '5. This
9 amendment to our original, you know, standard contract
10 just informs our customer that we're going to go ahead
11 and proceed with continuing the giving any software
12 electronically.
13 So that's the first is in our contract we --
14 you know, we do outline that we are going to be giving
15 the customer all electronic downloads and no TTP. I --
16 you know, so if we look at Exhibit 5 and we go to like
17 the third page, which is an XYZ letter, and XYZ letters
18 are normally standard procedures that the Department
19 used in the audit verification process from a third
20 party.
21 We gave the -- an XYZ letter to our customer,
22 the Trustees of California, and they, you know, note on
23 the XYZ letter that the software purchased was delivered
24 electronically and no backup copy of tangible media was
25 received.
26 They also included on their comments that all
27 software was delivered electronically.
28 We then were able to get in contact with Mr.
8
1 Keith Wandrey, and he is basically the person who
2 contacted Macromedia to, you know -- basically to strike
3 this deal and, you know, acquire Macromedia to be one of
4 the vendors to deliver this type of software.
5 And he spoke with the Department -- he spoke
6 with the District Principal Auditor, the Audit
7 Supervisor and the Auditor, herself and informed her the
8 reason why he chose Macromedia as the vendor. The
9 reason is because during that time Macromedia was the
10 only company that could be able to provide these kind of
11 software to them via electronic. And because they
12 handle all California State Universities they wanted to
13 be able to provide a platform for all the State
14 University just to go in and download the software from
15 the Internet instead of having, you know, multiple
16 copies of C.D.s, you know, passed around to different
17 departments.
18 So that was one of the reasons why -- that was
19 actually, I think, the main reasons why Macromedia was
20 chosen to be, you know, CSU's vendor.
21 So, I think in closing I -- I'd like to -- I'd
22 like to -- I'd like to basically first say that I really
23 feel like the Department didn't really take into
24 consideration the entire evidence. They felt -- I felt
25 like they basically kind of like took pieces of evidence
26 that would be deemed beneficial to them to disallow this
27 claim. And I would -- you know, I mean we have
28 documents that supports that this was USD. We have
9
1 customers' verbal and written testimony in Exhibit 5
2 that basically states and outlines that they didn't
3 receive anything tangible. And hopefully this is enough
4 evidence and this would be, you know, deemed to be
5 substantial evidence to the Board to, you know, make
6 your decision today with regards to allowing this
7 customer as being exempt via electronic download.
8 MS. YEE: Thank you very much, Ms. Nguyen.
9 MS. JOHNSON: Okay. Contention number 2 is Use
10 Tax. Again, that's our big spikey one on the graph.
11 So, a company like Macromedia has alternate
12 motivations to report Sales and Use Tax because there's
13 a California EZ Tax Credit on your income tax return, on
14 your California income tax return. And we were able to
15 find that -- some of those records.
16 So we have that included as Exhibit 7. And
17 that showed that we actually paid Sales and Use Tax tax
18 of 3.8 million in addition to the Use Tax that we
19 accrued of 1.2. So we -- overall Sales and Use Tax we
20 paid for that period is beyond $5 million.
21 The Board -- our big contention really is the
22 Board is trying to associate increase in sales with
23 our -- saying that if our sales increased from $80
24 million from the last tax period they audited up to 100
25 million that our Use Tax should have gone up
26 proportionately. And that's not true in a software
27 company. That might be true in, you know, liquor store
28 or a retail or something, you know, along those lines.
10
1 But a software company, their profit -- their operating
2 margin just becomes bigger and bigger and bigger as time
3 goes on. And their costs stabilize out.
4 So there's no correlation really between that
5 sales, and so we just think that's a faulty argument,
6 you know, to try to say, oh, you owe more Sales -- Use
7 Tax.
8 And second of all the -- in the past we have --
9 we show that it's never been an issue in our audits,
10 right. It's come down to that we're doing it accurately
11 and -- and then also just showing that -- that we
12 have -- other than just in the tax return, itself -- on
13 the Sales Tax returns, themselves, that we had that
14 external piece that goes on this California tax credit.
15 So I provided the -- the California return in there, as
16 well.
17 MS. OLSON: Time has expired.
18 MS. YEE: Okay. Let me do this, we'll give you
19 time on rebuttal, if we -- okay?
20 We'll be mindful of the time constraints.
21 Department, please.
22 MR. LAMBERT: Good morning, Madam Chairwoman
23 and Members. My name is Scott Lambert and I will be
24 representing the Sales and Use Tax Department today. To
25 my right is Kevin Hanks, also with the Sales and Use Tax
26 Department. And to Mr. Hank's right is Robert Tucker
27 with the Legal Department.
28 Macromedia is a wholesaler and retailer of
11
1 software for web site design. The audit covered the
2 period July 2003 to December 2005. This was a fourth
3 Sales and Use Tax audit of Macromedia.
4 Macromedia merged with Adobe Systems at the end
5 of 2005. The only records provided for audit were an
6 electronic file containing sales with California
7 delivery for the period May 2004 to December 2005, sales
8 tax returns with supporting worksheets and resale
9 certificates.
10 The other books -- books of account, such as a
11 General Ledger, Sales Journal, Purchases Journal,
12 General Journal were not provided.
13 In addition, supporting sales and purchase
14 invoices were not provided.
15 A records request was made to the Petitioner
16 within nine months of the merger. Regulation 1698
17 directs that records are required to be maintained for
18 four years unless otherwise directed.
19 The lack of records has placed a significant
20 scope limitation on this audit. Decisions had to be
21 made using the available records which has led to the
22 areas of disagreement in this audit.
23 There are three areas of disagreement. One,
24 unreported taxable sales based on the electronic file of
25 sales.
26 Two, purchases subject to Use Tax.
27 And, three, disallowed resales.
28 Regarding unreported taxable sales. The
12
1 recorded taxable sales for the period July 2004 and to
2 December 2005 were compared to the reported taxable
3 sales for the same period. It was noted that there was
4 a 38,000 difference between the tax recorded and the tax
5 reported.
6 To establish the taxable understatement for the
7 period July 2003 to June 2004 a percentage of error, 5.7
8 percent, was developed from this information and applied
9 to the July 2003 to June 2004 time period.
10 The Petitioner claims that these additional
11 taxable sales were either holds or voids but were not
12 additional sales.
13 The Petitioner states that Macromedia used
14 Oracle software and Adobe uses SAP. Petitioner claims
15 that a filter was turned off when the SAP software was
16 used and therefore the fault sales are included in the
17 electronic file but never actually took place.
18 It should be noted that the file only contains
19 sales made into California. Somehow the Petitioner was
20 able to filter the data by shipping location. Also the
21 file contains credit memos and no charged sales
22 invoices, which indicates the file may be complete.
23 There were -- there were responses from six
24 customers during the exempt sales tax which indicated
25 that they could not find certain sales in their records.
26 The Petitioner claims that this supports their
27 contention that the file contained false invoices.
28 The Department believes that there could be
13
1 various explanations for why some customers may not be
2 able to locate purchases in their system.
3 Unfortunately, without all the backup, such as the sales
4 order sheet, purchase orders, Accounts Receivable
5 ledgers, shipping records, et cetera, it is not possible
6 for the Department to know why the sales do not show up
7 on the customers' records.
8 In the prior audit a customer returned an XYZ
9 letter that stated no invoice received, did not realize
10 there was no tax charged, paid with credit card.
11 Also, there were sales from a related company,
12 Modus Media, which used a different accounting system.
13 It is the responsibility of the Petitioner to
14 maintain and provide proper records for audit. In this
15 case the Department must use the best source of
16 information available that has been provided by the
17 Petitioner.
18 Regarding purchases subject to Use Tax, the
19 Petitioner did not provide any purchase information.
20 Therefore, the Department is unable to audit purchases
21 subject to Use Tax.
22 In the audit covering the period January 1992
23 to March 1995, the Petitioner failed to report
24 withdrawals from resale inventory, give-away and items
25 withdrawn from resale inventory used for training
26 classes.
27 Again in the audit covering the period October
28 1995 to September 1998 the Petitioner failed to report
14
1 withdrawals from resale inventory.
2 The Petitioner reported $5.3 million in
3 purchases subject to Use Tax in the prior audit period.
4 In the current audit period $1.2 million in purchases
5 subject to Use Tax was reported.
6 The percentages of taxable purchases to total
7 sales in this audit period was 1.2 percent. The taxable
8 purchase -- the taxable percentage in the prior audit
9 period was 6.6 percent.
10 As stated earlier, since there were no purchase
11 records there was no way to audit this area. Therefore,
12 the reported/audited percentages from the prior audit
13 were used for this audit period.
14 The Department noted that the Use Tax
15 percentages had been declining over the prior audit
16 period.
17 Also, it was noted that the merger between
18 Macromedia and Adobe Systems was known around January
19 2005. Therefore, the taxable percentage of the last
20 year of the prior audit period was used as the taxable
21 percentage in this current audit.
22 The taxable percentage for the last year of
23 2002 was 2.6 percent.
24 The difference between the 2002 percentage of
25 2.6 and the current audit period of 1.2 was calculated.
26 The difference was 1.4 percent.
27 The 1.4 percent difference was applied against
28 the reported total sales to arrive at the unreported
15
1 taxable purchases subject to Use Tax.
2 Regarding disallowed exempt sales. It was
3 decided to test the exempt sales contained on the
4 electronic file using statistical sampling. Three
5 different populations were selected. One, sales
6 invoices with a line item for freight. Two, sales
7 invoices with a tax code of exempt without freight.
8 And, three, sales invoices with a tax code other than
9 exempt and without freight.
10 Each population was divided into three strata.
11 Those sales over $10,000 were divided -- were audited on
12 an actual basis. Other errors were assessed for the
13 audit period July 2004 to December 2005 based on the
14 results of the statistical samples.
15 For the period July 2003 to June 2004 a
16 percentage of error was established from the test and
17 applied. The reported sales for this period were
18 increased by the same percentage that the reported sales
19 were understated for the period July 2004 to December
20 2005.
21 The Petitioner argues that the percentage of
22 error should not be applied against the increased sales
23 because the higher sales are due to false sales
24 invoices. This argument is not valid.
25 Basically, even if we consider that the
26 electronic data contains false invoices, the false
27 invoices were included in the test base. The test base
28 and the base the percentage of error is applied against
16
1 must be the same.
2 I can clarify this at a later time if needed.
3 Additionally, all -- on all transactions where the
4 customers stated that they could not locate the purchase
5 in their records, the questioned sale was allowed as
6 non-taxable. Therefore, no so-called false sales were
7 disallowed and in fact they were left in the test base.
8 Regarding sales to CSU Long Beach. Several
9 sales to CSU Long Beach that were over $10,000 were
10 included in the statistical sample. Only those
11 transactions that indicated that tangible personal
12 property was provided were disallowed.
13 The Department acknowledges that the initial
14 software was transferred electronically. There is no
15 question that the Petitioner provides tangible personal
16 property to some customers.
17 The Petitioner argues that the contract states
18 that the software will be transferred electronically and
19 that the billing and/or charges for C.D.s and shipping
20 were made in error.
21 Charges for C.D.s and shipping were only made
22 on some sales invoices to CSU Long Beach. Only those
23 sales that contain tangible personal property on the
24 invoice were disallowed.
25 The Petitioner also argues that CSU Long Beach
26 provided a statement that asked that they did not
27 receive tangible personal property. It should be noted
28 that the sales was made three years before CSU Long
17
1 Beach researched their records.
2 Without conclusive information the Department
3 must use the best information available.
4 On each of the invoices to CSU Long Beach there
5 contained a C.D. and a charge for shipping. In addition
6 the contract stated that CSU Long Beach will be provided
7 with a C.D. Therefore, the sales were considered
8 taxable.
9 The Department concurs with the Appeals
10 Division's decision and recommendation.
11 MS. YEE: Thank you very much, Mr. Lambert.
12 You have five minutes on rebuttal.
13 MS. JOHNSON: Okay. I just want to go through
14 our -- our point number 3, which is a gap analysis
15 between the 80 million and the 72 million reported.
16 MS. YEE: Okay.
17 MS. JOHNSON: If you take the -- the XYZ
18 letters and responses, how the Board has done -- how the
19 Department, excuse me -- the Department calculated this,
20 they've taken it as sales relative to a big pool of
21 sales. So let's say it's 50,000 that was disallowed
22 that were -- were reported as errors, okay. Because we
23 had basically three -- six invoices come back and say
24 that they were not found, okay. So six percent and
25 that's that calculation on that -- okay.
26 Anyway, if you refer to this calculation in
27 your memo here that shows how that gap analysis was
28 prepared, they -- they're basing it on sales, we're
18
1 basing it on actual number of transactions that would --
2 have been -- should have been excluded from that
3 original number.
4 Okay. And now Purva's going to conclude with
5 some closing arguments.
6 MS. SAMANT: We just feel that we were
7 penalized unfairly only by picking and choosing what
8 they wanted to look at. And since we didn't have
9 documents, they didn't look into -- take into
10 consideration the prior audits for the Use Tax, how we
11 were doing a good job. And how even the auditors in
12 the prior three audits have complimented us in saying
13 that they -- that we learn from our mistakes and we were
14 doing a good job.
15 However, we couldn't provide them the -- the
16 purchase invoices. We feel that they just came up with
17 this liquor store, grocery store method to figure out
18 how much our liability should be for the Use Tax
19 portion.
20 So -- and I -- I just want to take -- give you
21 two examples how unfair and unprofessional the auditors
22 were. Basically I understand that the taxpayer
23 confidentiality is so important. I have been an auditor
24 for nine years for the Board of Equalization. They
25 faxed us a wrong (not understandable) for the wrong
26 taxpayer. Also during our Appeals Office -- Appeals
27 Conference the Supervisor from the San Jose District, he
28 was really unprofessional. He was very agitated. He
19
1 insulted our intelligence by saying that our
2 experience -- my nine years, hers two and a half years,
3 was not good enough. And he -- pretty much the Appeals
4 Officer had to interject and tell him to calm down.
5 And I just wanted to point these things out. I
6 don't want to sound bitter, but I just want to point
7 these things out to the Board because these are
8 important. The taxpayers are important. And taxpayer
9 confidentiality is important.
10 So also we feel that the entire -- you know,
11 entire audit was done pretty much unfairly. And I
12 would like the Board to take a look at all the
13 information that we provided today, our prior audits and
14 how we were doing a good job, and take that into
15 consideration into making your decision today.
16 And, yeah, all the supporting documents that we
17 gave today, our prior audits, the contract, everything
18 should be taken into consideration in the totality
19 versus just picking and choosing in what is beneficial
20 to when they prepared the audit.
21 That's -- that's it. Thank you for your
22 time.
23 MS. YEE: Thank you, Ms. Samant. Any further
24 comment at this point?
25 MS. JOHNSON: Well, there's a couple things I
26 dispute what he's saying but we -- we don't probably
27 have the time to explain it to you.
28 MS. YEE: Well, you have five minutes. Your
20
1 time isn't quite up yet.
2 MS. JOHNSON: Oh, okay.
3 MS. YEE: So -- but I was wondering --
4 MS. JOHNSON: Well, I just wanted on the gap
5 analysis, so the reason why we were --
6 MS. YEE: Actually, you have the remainder of
7 five minutes.
8 MS. JOHNSON: Okay. Do you want me to say it?
9 Okay.
10 MS. YEE: Please.
11 MS. JOHNSON: So, the reason we don't have the
12 records that we are looking for, we had the tax records.
13 But they -- we don't have the A.P. invoices. And we'd
14 actually pulled them all together, had them all boxed,
15 and it was sent off site to like Sa -- Data Safe,
16 right -- Data Safe, is a company that does off-site
17 storage.
18 And so we have -- we had done the record
19 retention process but when we go to retrieve it from
20 Data Safe they can't find the boxes. So we're sitting
21 here going, okay, what can we do?
22 So we're trying to build, you know, the story
23 around with other data that we have using the tax
24 return.
25 So it wasn't that we didn't do our due
26 diligence to try to retain that data. We did. We're
27 just relying on a third party now that has -- is not
28 able to find the boxes.
21
1 MS. SAMANT: Also for the CSU I know that he
2 said that we had to go back the three years after the
3 contract was done, but the same person, Mr. Wandrey, he
4 is the one who was involved throughout the audit,
5 throughout the -- from the inception of the contract all
6 the way until he spoke to the auditor. So he's the one
7 who gave his word and that's being considered, you know,
8 that he's being -- saying that he's lying pretty much
9 that he didn't get it -- get it electronic delivery. So
10 he was involved throughout. He is -- he signed the
11 contract.
12 MS. NGUYEN: And also he's basically the person
13 who seeked out Macromedia because we were the only
14 company at that time, like I mentioned, that could be
15 able to provide CSU with electronic downloads for their
16 software. And they -- you know, they mentioned to
17 Macromedia they do not want any C.D.s or what not, they
18 only want everything, you know, on line electronically
19 because it's just for efficiency purposes for the
20 California State University.
21 MS. YEE: Okay. Very well. Thank you very
22 much. Let me just ask the Department, have you seen all
23 these exhibits that have been provided today,
24 previously?
25 MR. LAMBERT: I think we've -- we've seen --
26 MS. YEE: You've seen --
27 MR. LAMBERT: I mean, we haven't seen the
28 charts and things, but --
22
1 MS. YEE: Okay.
2 MR. LAMBERT: -- otherwise.
3 MS. YEE: But most everything else?
4 MR. LAMBERT: Yeah.
5 MS. YEE: Okay. Very well. Questions or
6 comments, Members?
7 MS. MANDEL: Question.
8 MS. YEE: Ms. Mandel then Ms. Steel.
9 MS. MANDEL: On the CSU, the X -- I mean there
10 are XYZ letters I guess on a variety of things, but
11 this -- on CSU he signed one saying, "The software
12 purchase was delivered electronically only, no backup
13 copy on tangible media was received," and typed in
14 comment are, "All software was delivered
15 electronically," and then "Invoice 1434207 was not paid
16 received and may not belong to CSU."
17 And this is from the Senior Director/
18 Controller of CSU Long Beach.
19 So, my understanding is the Department included
20 CSU where you found in the taxpayer's records -- not
21 just that the contract, which is apparently a canned
22 contract that refers to giving a master C.D. and then
23 this one has no shipped to except for electronic, but
24 that you also relied on that you found some reference
25 in -- I guess it's this invoice reference in the
26 taxpayer's records showing a price for -- showing C.D.
27 delivery and a charge for shipping.
28 But can you explain a little bit -- I mean
23
1 usually taxpayers get XYZ letters and if you have
2 concerns about the XYZ letter you follow up, so -- with
3 the person who signed it. So, why this XYZ letter makes
4 no difference to you or these other XYZ letters that are
5 referenced on their contention 3, where -- which is -- I
6 guess they're calling it the gap, where they say that
7 the XYZ -- there were other XYZ responses indicating
8 that the invoices the Department listed didn't exist in
9 the customer's records.
10 Can you explain why that stuff is still being
11 picked up?
12 MR. LAMBERT: Well, to address the issue of
13 they're saying it's not included in the -- that the
14 sales were not included or didn't take place, none of
15 those sales were included as taxable in the audit. So,
16 all of them were basically treated as a -- they were
17 allowed as existing but non-taxable.
18 MS. MANDEL: Okay. Then what about the -- what
19 about the CSU? Is this particular CSU --
20 MR. LAMBERT: The CSU --
21 MS. MANDEL: -- that they've given us the
22 document on not --
23 MR. LAMBERT: It is.
24 MS. MANDEL: It is which? I'm sorry.
25 MR. LAMBERT: That's okay. The -- the XYZ
26 letter that they provided pertains to several of the
27 sales that were made to CSU Long Beach that we included
28 as taxable.
24
1 Not all the sales were considered taxable in
2 the audit. Only those sales that had a line item for
3 C.D. delivery and also a freight charge on the invoice
4 were considered to be taxable.
5 MS. MANDEL: And so the -- I mean I -- this
6 specific invoice that the gentleman refers to in the XYZ
7 letter, you're saying that one would -- would have been
8 treated as not taxable because he's identifying I don't
9 have that particular one?
10 MR. LAMBERT: Well, he's -- he's basically
11 saying, as I understand it, that all -- all the software
12 sold from Macromedia to CSU Long Beach was delivered
13 electronically.
14 MS. MANDEL: Right. That's --
15 MR. LAMBERT: And we don't argue that fact. We
16 agree that that's in fact what happened. The problem
17 comes into is if the tax -- if the customer receives a
18 C.D. --
19 MS. MANDEL: Uh-huh.
20 MR. LAMBERT: -- those charges all become
21 taxable. So, what we did is --
22 MS. MANDEL: Right.
23 MR. LAMBERT: -- we allowed the ones that
24 had -- that didn't show tangible personal property being
25 delivered and taxed the ones that the invoices showed
26 that there was a delivery of tangible personal property.
27 MS. MANDEL: Right. And I guess I'm asking
28 about this specific invoice because he references a
25
1 specific invoice so that I assume that meant that you
2 guys were trying to pick that one up.
3 It's -- it says invoice 1434207. That's --
4 MR. LAMBERT: Okay.
5 MS. MANDEL: He says he wasn't paid or received
6 and may not belong to CSU. So --
7 MR. LAMBERT: Oh, was that -- that one included
8 in the audit? No, it was not.
9 MS. MANDEL: It was not.
10 MR. LAMBERT: It was included --
11 MS. MANDEL: I mean, I'm reading the stuff for
12 the first time --
13 MR. LAMBERT: Yes.
14 MS. MANDEL: -- so I want to make sure.
15 MR. LAMBERT: Yes, it was -- well, let me
16 just --
17 MS. MANDEL: Was it --
18 MR. LAMBERT: -- let me just clarify.
19 MS. MANDEL: Okay.
20 MR. LAMBERT: The sale was included in the
21 audit and it was treated as non-taxable.
22 MS. MANDEL: Okay. Thank you.
23 MS. YEE: Okay. Thank you. Ms. Steel.
24 MS. STEEL: I have a question to Appeal
25 Division that I want to follow up that things that when
26 they sold the merchandise by electronically it's
27 non-taxable. But they got the one compact disk to --
28 for the backup reason, so suddenly it's taxable. Is
26
1 that like when you get one C.D. then suddenly that all
2 electronically delivered it's taxable that even it's
3 done before they got delivered for a compact disk,
4 itself?
5 What -- what's the law here?
6 MR. LEVINE: Well, I'm not sure I understood
7 the last question.
8 MS. STEEL: Okay. They -- they sold all the
9 electronically delivered merchandise, that's
10 non-taxable. And at one point they got C.D. -- compact
11 C.D. to back up. So suddenly when they had the tangible
12 item there then suddenly all these other downloads are
13 they taxable?
14 MR. LEVINE: When you have a contract for sale
15 of licenses of software to avoid tax you have to avoid
16 any tangible personal property.
17 MS. STEEL: Right.
18 MR. LEVINE: Just practically speaking.
19 MS. STEEL: So it's electronic, right.
20 MR. LEVINE: If a company gets a good download
21 and they're trying to avoid tax, they get the download.
22 They back it up themselves. I mean that's what I would
23 do in a -- theses are software people so they know how
24 to tell their customers how to do it. Get the software,
25 back it up. If there's a problem we'll do it again. I
26 assume they'll do it however many times.
27 If someone gets a C.D. or a DVD or whatever
28 tangible media transfers the software in connection with
27
1 the sale of licenses, there's no way for us to police
2 whether they got three of their outlying computer users,
3 downloaded it direct or got it off the DVD.
4 Basically, once you get the tangible property
5 in connection with the sale of licenses, yes, you've
6 infected the whole deal. And that's why when you sell
7 one DVD with ten licenses and they later say we want a
8 hundred more licenses, and they're using their existing
9 DVD to transfer them out, it's part of the original
10 sale.
11 So, yes, it's taxable.
12 MS. STEEL: No, I'm talking about before it
13 happened.
14 MR. LEVINE: If they had -- if you had a
15 situation -- you have technical and -- and practical. If
16 you had a situation where they bought some licenses
17 delivered electronically and then the same customer
18 bought more licenses with -- and got a DVD, if I was
19 auditing I'd have my doubts about that. If it were
20 truly a wholly separate transaction that was completely
21 done electronically then, yes, it's non-taxable.
22 MS. STEEL: Forget about you have -- I'm asking
23 just the law. I'm not asking you have to doubt that,
24 you know, their intention. Just the law, itself, that
25 asking because they bought it electronically and invoice
26 was all said that. And then this is like two or three
27 years audit period, and then after a few -- couple of
28 years or few months, I don't know exactly when they got
28
1 the compact disk, but that disk was purchased at that
2 point.
3 I'm asking you that by the law that you have to
4 go back that all electronically, you know, downloaded
5 ones are taxable, too. So you have to go back there.
6 That's what I'm asking.
7 MR. LEVINE: I don't understand that that's --
8 MS. STEEL: I don't really care much about --
9 MR. LEVINE: -- what the Department --
10 MS. STEEL: -- after.
11 MR. LEVINE: I don't understand that that's
12 what the Department did. The Department took discrete
13 invoices that the Department concluded there was a
14 backup disk transferred and treated only that invoice
15 and the sales on that invoice as taxable but did not go
16 back and treat a different invoice for a completely
17 separate sale under the same master contract.
18 MS. STEEL: So Department is -- $395,000 one,
19 that that's not including the what it's been downloaded
20 before --
21 MR. LAMBERT: That's correct. That's correct.
22 MS. STEEL: -- they got the physical compact?
23 MR. LAMBERT: Only --
24 MS. STEEL: It's --
25 MR. LAMBERT: Only the invoices that were
26 billed for that time period were taxed. So, this was a
27 specific invoice for a specific time period that they
28 received a C.D. at that time, based on the invoice.
29
1 MS. STEEL: So C.D. at that time and then after
2 on but not before?
3 MR. LAMBERT: That -- that's correct.
4 MS. STEEL: The same program.
5 MR. HANKS: Correct. So the C.D. would have
6 been provided contemporaneous with -- with the sale of
7 the software.
8 MS. NGUYEN: Can I interject really quick?
9 MS. STEEL: Yeah.
10 MS. NGUYEN: This invoice that -- that they're
11 saying that this -- there was a freight item and C.D.,
12 it's not an invoice. We were never able to really
13 provide any invoice. We would provide -- be able to
14 provide like a -- like a line item, right, electronic --
15 basically we provided the -- the Department with an
16 electronic download of a bunch of stuff from the Oracle
17 system --
18 MS. SAMANT: Accounting.
19 MS. NGUYEN: -- that -- that we deactivated
20 like years before the -- the Department decides to come
21 in and audit us.
22 So they got download of, you know, a bunch of
23 line items, you know. So there's no actual invoice
24 because we don't have the actual invoice.
25 And for this one invoice there was a line item
26 for a C.D. and a line item for freight. And what we
27 believe happened, because we asked -- you know, well
28 actually when the XYZ letter was sent out the CSU
30
1 directly called the auditor and spoke directly to the
2 auditor. And the auditor was just like, you know, I'm
3 not -- I don't want to talk to you, basically.
4 So then the CSU then contacted me because my
5 name was on the XYZ form as a contacting person. And
6 I -- and I asked the CSU like did you guys -- did you
7 guys receive any, you know, C.D.s, because if they did
8 they're liable for the tax and, you know, I mean we're
9 not here trying to evade tax or avoid tax. If -- if
10 it's taxable, it's taxable.
11 MS. STEEL: So it never happened, that's what
12 I --
13 MS. NGUYEN: So then they said to us, it
14 never -- we never got a C.D. And I even mentioned to
15 them, well, there's no line item that said that we
16 charged you $10 for freight, and it shows the C.D.
17 It's like, well, I can understand, and he --
18 and he came up with this explanation, he said, okay, so
19 there's a line item for $10. I mean, you -- we're doing
20 transactions for hundreds of thousands of dollars. If
21 we overlooked $10, we overlooked $10, you know.
22 And another thing is he -- he told me, he said,
23 "How do I know that your A.R. clerk didn't, you know,
24 invoice us incorrectly?"
25 And I said, "Well, you're right. I don't know
26 that, you know." And he goes, "Your contract states
27 that we're going to be doing everything electronically.
28 You know, we've never received anything."
31
1 "I spoke to Keith, the guy who was basically in
2 charge of this whole process. And if anything were to
3 come, it would come directly to him."
4 And he said, "I've never got anything." So he
5 goes, "I don't know what you guys are talking about
6 because, you know, we're basically following with
7 whatever the contract. We download everything. We've
8 never received anything. I don't care what your invoice
9 says or what the line item says. I'm telling you I'm
10 telling the auditor that we didn't receive anything."
11 And that's where -- you know, that's basically
12 what we're getting --
13 MS. SAMANT: Yeah.
14 MS. NGUYEN: -- from our customer. And I mean
15 I'm thinking that to be as it would be sufficient to the
16 auditor to say, hey, this one invoice could be an error
17 invoice from a clerk that, you know, pulled the wrong,
18 you know, product SKU or whatever, you know.
19 MS. STEEL: Did you get any letter or anything
20 from that person that you --
21 MS. NGUYEN: Yeah, we got, actually a --
22 MS. STEEL: Is this the one?
23 MS. NGUYEN: -- a letter, yeah, from Keith,
24 which is an Exhibit 5 where he said --
25 MS. YEE: Right.
26 MS. NGUYEN: -- "I received nothing." You
27 know, and he worked for California State University. He
28 works for the State of California. I don't think he's
32
1 going to perjurize himself or lie, you know. It's not
2 his money, you know. If they owe it, they owe it. If
3 we owe it, we owe it, you know. We're -- we're not
4 in -- you know, we're not trying to avoid tax. We were
5 all tax auditors at a point in time. We're, you know,
6 very aware of the law --
7 MS. YEE: Okay.
8 MS. NGUYEN: -- and stuff like that.
9 MS. STEEL: So, Department is saying that --
10 how you going to interpret that, that --
11 MR. LAMBERT: How do we interpret it?
12 MS. STEEL: -- that person -- yeah, said that,
13 you know, we never received it, maybe invoice was wrong
14 and, you know, we never really physically received any
15 stuffs from the company.
16 MR. LAMBERT: Right. If the Department thought
17 that all transactions in regards to software took place
18 electronically we would agree that, you know, this was
19 just a mistake --
20 MS. STEEL: Right.
21 MR. LAMBERT: -- and -- and should --
22 MS. STEEL: But that letter that --
23 MR. LAMBERT: And there's a letter there which
24 I'll -- I'll address in -- in a second.
25 They -- in the prior audit there's also sales
26 to State Universities of similar type products that were
27 included in the audit as taxable because they
28 received --
33
1 MS. STEEL: You mean same tax period that, you
2 know, we been --
3 MR. LAMBERT: No, it was a different tax -- it
4 was a prior audit, but the point that I'm -- that I'm
5 making is, is that they -- customers do receive C.D.s.
6 And so there's that issue.
7 MS. STEEL: But this is the customer said that,
8 no, we never received it, so --
9 MR. LAMBERT: Right.
10 MS. STEEL: -- sometimes they receive it but
11 for this period that he said "I never received it" .
12 MR. LAMBERT: Right. And that -- the problem
13 that we come into is that there's their word and then
14 there's the records. And the records are
15 contradictory --
16 MS. STEEL: Well --
17 MR. LAMBERT: -- to what they said. And the
18 fact that someone might have been the purchasing agent
19 for this and whether somebody else received the C.D. or,
20 you know, a possibility. You know, the -- if you look
21 at the Board of Equalization the people that are buying
22 the products aren't necessarily the people that are
23 receiving the products. And the fact that it could have
24 been delivered to them three years earlier is a distinct
25 possibility. And the fact that, one, on the contract it
26 says they're entitled to a C.D., and then the -- the
27 invoice says they were sent a C.D., the Department used
28 that evidence to --
34
1 MS. STEEL: But if he received it, why he has
2 to write a letter that he never received it? Because
3 you're not going to lie to the tax agency that --
4 MR. LAMBERT: Right.
5 MS. STEEL: -- you know what they didn't
6 receive it.
7 MR. LAMBERT: Right. Well, I understand
8 that -- that point.
9 MS. STEEL: Yeah.
10 MR. LAMBERT: And you run into an issue here of
11 we're not taxing CSU Long Beach. The -- the tax is
12 against Macromedia and they're the ones that are
13 responsible for providing evidence that a sale is exempt
14 from tax and they haven't done it in this -- in this
15 case.
16 MS. STEEL: They're the -- responsible, that's
17 why they got a letter from their customer. So we cannot
18 really stretch that far for that, you know.
19 MR. LAMBERT: I --
20 MS. STEEL: Okay, let's move on. For Use Tax,
21 seems like the Depart -- the taxpayer, the company, had
22 a very good record for the last 11 years. So we never
23 really changed penny that, you know, whatever they
24 reported. Why suddenly that, you know, we change and we
25 are giving them different rate of Use Tax for this
26 period?
27 MR. LAMBERT: Oh, on -- okay, on purchases
28 subject to Use Tax, they have been assessed tax in
35
1 previous audits for Use Tax.
2 MS. STEEL: How many?
3 MR. LAMBERT: Two --
4 MS. STEEL: And for last 11 years?
5 MR. LAMBERT: Two out of the -- two out of the
6 three.
7 MS. STEEL: How much difference for those two?
8 MR. LAMBERT: I'm going to do it off the top of
9 my head. I think --
10 MS. JOHNSON: Well, it's on the graph.
11 MR. LAMBERT: No, actually I'll look --
12 MS. JOHNSON: It will tell you on our graph.
13 MR. LAMBERT: 180 --
14 MS. YEE: Let -- let me have the Department
15 respond.
16 MS. JOHNSON: Oh, sorry. I'm sorry.
17 MR. LAMBERT: 64,000 -- 65,000 and -- in
18 measure, and approximately 200,000 in measure for the
19 two -- two audits.
20 MS. STEEL: So that's -- what's the percentage
21 of the total sales, the Use Tax?
22 MR. LAMBERT: A percentage --
23 MS. STEEL: The measure, yeah.
24 MR. LAMBERT: I -- I don't know. We don't have
25 that information. The -- the audit -- I have
26 the previous audit --
27 MS. STEEL: Uh-huh.
28 MR. LAMBERT: -- but I don't have the two
36
1 before that. And in the previous audit is not when we
2 had the problem with -- with that issue.
3 MS. STEEL: So how did we come up with this
4 1.379 percent error rate?
5 MR. LAMBERT: Yes, what we did is we took a
6 look at the -- we took a look at the prior audit period
7 and it was approximately six and a half percent.
8 Purchases were -- taxable purchases were six and a half
9 percent of total sales. And those purchases added up to
10 $5.3 million.
11 We took a look at our audit period and it added
12 up to 1.2 percent, $1.2 million. So, we could -- we
13 gave the taxpayer the benefit of the doubt by assuming
14 that the purchases -- the rate of withdrawals from
15 inventory or purchases subject to Use Tax were
16 declining. We used the last period last year in the
17 prior audit, which was 2.6 percent. We compared that to
18 the 1.2 percent that they reported during this audit
19 period and we came up with the approximately 1.37
20 percent.
21 MS. YEE: So the ratio you used was adjusted to
22 reflect declining activity going forward?
23 MR. LAMBERT: That's correct.
24 MS. YEE: Okay.
25 MS. JOHNSON: May I note here that they're --
26 they're comparing it to sales. And again in our
27 situation sales don't matter. You know, they're trying
28 to build that ratio against a sales number, saying that
37
1 our proceeds -- our sales increased so therefore they
2 should have increased. But it doesn't, that's not how
3 it works in software.
4 MS. STEEL: How it works then?
5 MS. JOHNSON: How it works in software is that
6 you have -- so, a software -- the life of a software
7 company, the more -- the older you get as a company the
8 more your profit margin increases because you have
9 committed all your expenses.
10 You don't have -- you don't have a
11 relationship. You don't have inventory that's related
12 to your sales because you've already invested all this
13 time in building the code. Now you're just flipping
14 off, hey, you know, hamburgers off the -- or, you know,
15 the disks. That's all you're doing is churning disks.
16 So there's no relationship to sales -- excuse
17 me -- yeah, like a liquor store you have -- you're
18 buying liquor post-sale and then selling it retail,
19 right? You're always going to have that relationship.
20 MS. STEEL: Can you provide the -- the
21 documents for that Use Tax?
22 MS. JOHNSON: Oh, yeah -- well, the Use Tax
23 is -- what -- what -- can I provide what documents?
24 MS. STEEL: The records. Purchase records.
25 MS. JOHNSON: We don't have purchase records
26 but what I included in number 7 was all the Sales and
27 Use Tax that -- that show our purchase -- I'm sorry,
28 that is our purchase records, okay, that is -- that was
38
1 used for our sales tax credit -- Sales and Use Tax
2 credit.
3 So, this would have been similar and we would
4 have had those similar back in -- in those previous
5 audits, too.
6 MS. NGUYEN: So what those records are showing
7 is basically we paid $209,594.86 to California vendors
8 in tax for purchases made through -- through the one
9 year, which April 1st to, you know, March 31st, 2005.
10 For one year -- for one year we basically -- if
11 we were going to do it in measure, we basically
12 purchased $3.8 million of purchase of assets or fixed
13 assets, office supplies, computers and et cetera from --
14 you know, from California vendors.
15 And then, you know, if you notice that we also
16 self-accrued, you know, any tax that were purchased from
17 out of state. And we self-accrued for that year about
18 another 823,000 in measure.
19 So if you add those to -- if you add that just
20 that one year, you know, what we did is we basically
21 purchased $4.8 million in --
22 MS. STEEL: So, to the Department that, you
23 know, we assume these figures for percentage of rate of
24 error.
25 MR. LAMBERT: Right.
26 MS. STEEL: So, did you look at that what they
27 provided, all the documents and then did you go through
28 it?
39
1 MR. LAMBERT: The information that they
2 provided now --
3 MS. STEEL: Uh-huh.
4 MR. LAMBERT: -- I don't believe so.
5 MS. NGUYEN: Well, we just found --
6 MS. YEE: Let me have the Department answer and
7 I will --
8 MS. NGUYEN: Oh, yes.
9 MS. YEE: -- get back to you.
10 MS. NGUYEN: We're sorry.
11 MS. YEE: I'll give you time. We're just
12 trying to get all this information in our head.
13 MS. NGUYEN: Yeah.
14 MS. YEE: Thank you.
15 MR. LAMBERT: We have not looked at that
16 information. The problem with -- with this is it's not
17 just purchases from vendors of -- of fixed assets and
18 consumable supplies. It's also withdrawals from resale
19 inventory that they're using for different reasons. And
20 the information is not available to look at to determine
21 any of that amount.
22 So, the fact that they provided this
23 information here is it's not going to help us come up
24 with an answer.
25 MS. NGUYEN: I'm sorry, but I'd like to --
26 MS. SAMANT: Yeah, I know what he's talking
27 about.
28 MS. NGUYEN: Yeah. We don't have any
40
1 withdrawals from inventory, you know.
2 MS. SAMANT: We don't have inventory.
3 MS. NGUYEN: We're -- we're a software company.
4 We basically are, you know -- Macromedia is, you know,
5 basically trying to research new software, new
6 technology for, you know, photography or for, you know,
7 on-line access. There -- we don't have any -- we don't
8 withdraw any -- we don't have any inventory. We don't
9 keep inventory.
10 I mean if you were talking about inventory I
11 think it would be our Research and Development engineer
12 people.
13 MR. LAMBERT: Okay. Well --
14 MS. NGUYEN: Yeah. So there is no -- there is
15 no inventory that we're pulling out and, you know, I
16 just wanted to also, you know, note that the -- the
17 Department is assuming that this Use Tax is lowered
18 because, you know, we're not accruing more. But they
19 don't also realize that we're probably transitioning
20 more to California vendors, so we're paying more sales
21 tax at source, you know, to our California vendors and
22 basically purchasing less from our out-of-state vendors.
23 And that could be the reason for the decline in Use Tax,
24 you know.
25 And if you look at the like prior audits I
26 mean -- I mean the Department has mentioned prior audits
27 and if you look at prior audits, you know, that we had
28 three cycles for the last 11 years this -- this -- you
41
1 know, this area has never been addressed too much to
2 something to 1.4 million in measure that they would
3 like -- that you guys would like us to pay now and, you
4 know, it really has not really been addressed and, you
5 know, we kind of like -- if you look at the prior audit
6 period we had no issue in it.
7 I mean, the auditor said pay bills test was
8 done for the year, nothing has came up, fixed assets
9 were looked at, nothing happened -- I mean it's in the
10 audit comments of these auditors for the last three
11 years and I'd like that to take into consideration that.
12 MS. STEEL: Department.
13 MR. LAMBERT: Yes. In the audit -- prior audit
14 has purchases subject to -- and I'm just reading from
15 the -- from the report, "Purchases subject to Use Tax
16 understated. Item A, items withdrawn from resale
17 inventory given away. B, items withdrawn from resale
18 inventory used for training classes."
19 So, obviously they do have withdrawals from
20 inventory for use, but the Department can't say how much
21 they had this time because we haven't been provided with
22 the documentations to audit to say it isn't accurate or
23 not. And that's the whole problem that comes into -- in
24 this case you have them reporting five -- I believe it's
25 5.6. That might not be an accurate statement. But over
26 $5 million in purchases subject to Use Tax in the prior
27 audit period and in this audit period you have 1.2
28 million.
42
1 It's a substantial difference. We don't -- we
2 haven't been allowed to audit anything. We've made
3 assumptions because of that.
4 MS. STEEL: Thank you.
5 MS. NGUYEN: One more point. I know that the
6 Department is pulling an -- an audit report dated back
7 in 1992. And during 1992 I don't think we were in --
8 you know, we were basically in production of more like
9 hard goods, compact disks, more tangible stuff. But if
10 you're looking at, you know, the -- the more recent
11 audit, which is dated in 2000, where we just started the
12 dot.com, you know, industry, internet was very, you
13 know, available and Macromedia was one of the drivers
14 and one of the leaders in the innovation of putting
15 every -- all these softwares on line.
16 So, I mean, you know, that's when we started
17 moving away from all this inventory that, you know, we
18 had back in 1992 when we didn't even know really
19 computer really existed.
20 MS. YEE: Okay. I'm going to have you stop
21 there. I want to get all the questions out on the table
22 from the Members.
23 MS. STEEL: Thank you.
24 MS. YEE: Ms. Steel, thank you. Okay, Mr.
25 Horton.
26 MR. HORTON: Yeah. Is there any reason we
27 couldn't have extrapolated using Cost of Goods Sold
28 instead of sales? And would that have been in hindsight
43
1 maybe a better reflection?
2 MR. LAMBERT: I'm just thinking because I
3 hadn't thought of that before. Would Cost of Goods Sold
4 be a better indicator?
5 MR. HORTON: Based on the --
6 MR. LAMBERT: You know --
7 MR. HORTON: -- recent testimony.
8 MR. LAMBERT: -- yeah, I -- I don't know the
9 answer to that question.
10 MR. HANKS: Mr. Horton, I -- I think you
11 probably could have used either -- either method in --
12 in this case. But I think Cost of Goods Sold would have
13 been rising at the same time that -- that their sales
14 were rising. So you probably have an incremental
15 increase in either Cost of Goods Sold or -- or in sales.
16 MR. HORTON: No, I -- I would agree, the -- the
17 taxpayers is contending that at some point there was a
18 change in the relationship of Cost of Goods Sold to
19 sales and particularly a relationship to the Use Tax, in
20 that they actually started to inventory less items.
21 So, theoretically, there would have been a
22 reduction somewhere along the lines in actual Costs of
23 Goods Sold. Just taking the testimony. I mean, I'm not
24 trying to --
25 MR. HANKS: Right.
26 MR. HORTON: -- micro-manage the audit, but --
27 MR. LAMBERT: I think -- I think there's a flaw
28 in that argument. You're basically saying -- what
44
1 they're saying is back in '92 and actually this audit
2 was in '96, but back in that period we've reduced it.
3 But then when you look at the taxable measure from the
4 prior audit it's 5.2 million. So it doesn't -- or 5.6,
5 I'm not sure, it's over 5 million -- that they reported
6 in purchases subject to Use Tax. So that -- that
7 argument doesn't really hold.
8 MR. HORTON: So --
9 MS. YEE: Let -- I'll give you time. Please.
10 MR. HORTON: -- you're basically saying that
11 the Cost of Goods Sold -- the relationship to Cost of
12 Goods Sold and sales was consistent throughout the audit
13 period and the auditor didn't observe that there was any
14 fluctuation that would cause them to be concerned about
15 a reduction in the Use Tax -- extrapolating the Use Tax
16 from the test period?
17 MR. LAMBERT: Well, the auditor did not take
18 Cost of Goods Sold into account and -- I guess the basic
19 problem is --
20 MR. HORTON: Did --
21 MR. LAMBERT: -- is that we weren't -- we
22 didn't have access to that. All we had were just an
23 electronic file with sales on it and -- and that's
24 really the problem with this particular case.
25 MR. HORTON: Okay. So, I mean in the absence
26 of any other information the Department didn't -- it
27 didn't appear that they had any options. But with that
28 information, is that information available now?
45
1 MS. JOHNSON: Well, there's two things that's
2 available. One is that Exhibit 7, which gives all the
3 purchases for -- for California for that time --
4 actually it's for everything but two quarters where --
5 so it's two years and this is -- the audit period is two
6 and a half. I could find -- so, in essence there would
7 be even more than this if we looked at that further
8 analysis.
9 So that's -- that's new information that would
10 support --
11 MR. HORTON: So Exhibit 7 has -- help me
12 understand that.
13 MS. JOHNSON: Yeah, there's a -- there's two
14 sections in there. There's --
15 MS. SAMANT: There's a summary page in the
16 front.
17 MS. JOHNSON: Well, that's two -- that's for
18 the first section only. So there's -- there's a divider
19 with just a single white page.
20 MR. HORTON: Are the pages numbered?
21 No.
22 MS. NGUYEN: No, we should have done that.
23 MS. JOHNSON: So that if you look at the second
24 page that's for FY '05. Okay. So that shows you 1.7
25 million. And 146,000 of tax.
26 MR. HORTON: Got it.
27 MS. JOHNSON: Then if you -- then you have all
28 the detail behind it that supports that number. So
46
1 that's all the purchases. And then behind -- then
2 there's a blank page and then there's another page that
3 shows EZ Tax Credit from that -- that supports -- that
4 shows the number went onto that form. And then behind
5 that one shows the second --
6 MR. HORTON: So this is the purchase of --
7 of --
8 MS. JOHNSON: Of equip -- this is the purchase
9 of --
10 MR. HORTON: -- (inaudible) I'm sorry.
11 MS. JOHNSON: -- equipment, supplies, things
12 that we use -- the type of things that we purchase in
13 California, okay --
14 MR. HORTON: And this --
15 MS. JOHNSON: -- that we would be subject to
16 Use Tax.
17 MR. HORTON: And the -- and you pay the tax on
18 that?
19 MS. JOHNSON: And we've paid the tax on it.
20 MS. NGUYEN: Too, because these are California
21 vendors. So we paid at the source. We pay the sales
22 tax at the source to the California vendors.
23 MR. HORTON: What about the -- the additional
24 Use Tax that's being assessed by the Department?
25 MS. JOHNSON: Right. Well, that one's -- no,
26 so we have paid 1.2 which we recognized on our tax
27 return, itself, right.
28 MR. HORTON: Okay.
47
1 MS. JOHNSON: They're -- they're assessing us
2 an additional 1.4 million. But we're saying we don't --
3 1.4 -- because they're contending that the percentage
4 relative to sales should be the same as the last
5 quarter -- should be the same as FY '02, for instance.
6 MR. HORTON: I don't know that this has any --
7 MS. NGUYEN: Well, I mean that's -- that's if
8 they were saying that, you know, all of a sudden we --
9 they're saying that if we continued using these
10 out-of-state vendors then we would accrue Use Tax,
11 right? But we're saying that, well what if we change,
12 you know, from using these out-of-state vendors and
13 start purchasing all of our offices and equipment in
14 California and started using California vendors,
15 therefore we are eligible for this California credit tax
16 because we -- you know, we purchase -- you know, and
17 using California vendors and we pay tax on these
18 California vendors. That's the reason --
19 MR. HORTON: But that seems like a -- seems
20 like you're arguing several different things here. So
21 let me make sure that I can --
22 MS. NGUYEN: Okay.
23 MR. HORTON: -- separate the two in my mind.
24 You've presented a schedule showing the Sales Tax that
25 you've accrued from California vendors.
26 MS. JOHNSON: Right. So that --
27 MR. HORTON: And -- and --
28 MS. JOHNSON: -- that shows all of our
48
1 purchases for that period.
2 MR. HORTON: -- Ms. --
3 MS. YEE: Ms. Johnson -- Ms. Johnson, you'll be
4 well served to listen to the question first, please.
5 MR. HORTON: And so -- so, in -- and you're
6 saying that you're entitled to a tax paid resold credit
7 because you actually sold some of this?
8 MS. NGUYEN: No, no.
9 MR. HORTON: What's the credit that you're --
10 MS. JOHNSON: Can -- can I explain the credit?
11 MR. HORTON: -- you're --
12 MS. JOHNSON: All right.
13 MR. HORTON: -- entitled to?
14 MS. JOHNSON: This is -- this is a -- we had to
15 support purchases that they were -- they were paid Sales
16 Tax on those purchases, or Use Tax, okay. But we had
17 to -- we didn't have our invoices --
18 MR. HORTON: -- enterprise.
19 MS. JOHNSON: -- our records -- vendor records.
20 So, what we did is we found on our California income tax
21 return there is a sales tax credit that you can get,
22 there's a -- it's called the California EZ --
23 MR. HORTON: Right, right.
24 MS. JOHNSON: -- Sales and Use Tax credit.
25 This is the documentation that supports that credit,
26 which shows all of our purchases for '05 and and '04 --
27 '04 and '05, okay?
28 MR. HORTON: Okay, I got it. I got it.
49
1 Now -- now, help me understand how that has
2 relevance to the audit and the audit liability.
3 MS. JOHNSON: Because --
4 MR. HORTON: I mean, this is the amount that
5 you've -- you've collected, you've accrued. You took
6 the credit on the 385 Z --
7 MS. JOHNSON: Uh-huh. Yeah.
8 MR. HORTON: -- on the enterprise zone credit.
9 So you've got that credit, I understand that.
10 MS. JOHNSON: Yup.
11 So, what it is says is that would have asked us
12 for detail of what were your purchases, and we would
13 have provided this information saying, "These are our
14 purchases and we would have shown that we've already
15 either paid sales tax on it because it shows sales tax
16 on there, or -- or we would have accrued Use Tax on it.
17 MR. HORTON: Okay. For the Department. Is
18 there -- the sales tax that the taxpayer has accrued and
19 has evidence that they have accrued the Sales Tax, are
20 any of these items included in the tests?
21 MR. LAMBERT: There was no test. So we didn't
22 have --
23 MR. HORTON: Oh, in the amount that you picked
24 up.
25 MR. LAMBERT: I don't know how to answer --
26 either -- I don't know how to answer that other than we
27 used the percentage from the prior audit. They -- what
28 took place during this audit period --
50
1 MR. HORTON: Uh-huh.
2 MR. LAMBERT: -- we had no information for, we
3 had no detail. We didn't know what assets were
4 purchased. We didn't know what consumable supplies were
5 purchased. We didn't know the withdrawals from
6 inventory for whatever reason. Anything that they would
7 accrue tax on, we did not have access to that
8 information. We -- we couldn't and did not audit that.
9 So --
10 MR. HORTON: So --
11 MR. LAMBERT: We used --
12 MR. HORTON: -- tell me, how did the Department
13 come up with the --
14 MR. LAMBERT: We used the prior -- the
15 percentage from the prior year -- well, let me start
16 exactly how we did it.
17 The -- the prior audit they reported 5 point
18 something in measure, in taxable measure on line 2 of
19 their returns. We took that amount and divided it into
20 their total sales to come up with a percentage. And
21 I -- I believe it came up to 6.4 percent.
22 MR. HORTON: Yeah.
23 MR. LAMBERT: And so, what we looked at was
24 that we could see that it was -- that anyway there might
25 have been some decline in the 2002 period.
26 MR. HORTON: Right.
27 MR. LAMBERT: There was only -- it worked out
28 to be 2.6 percent of their sales were equal to the
51
1 purchases that were subject to Use Tax. And so we used
2 that last ratio for 2002 as our audited figure for this
3 audit period.
4 MR. HORTON: Okay.
5 MR. HANKS: Giving them allowance --
6 MR. HORTON: Let me --
7 MR. HANKS: -- for the 1.3 percent that they
8 had previously reported to us in -- in Use Tax measure.
9 MR. LAMBERT: Right.
10 MR. HANKS: So we held a 2 percent of -- of --
11 of this calculation was subject to Use Tax; we were
12 taxing 1 percent basically and giving them credit for
13 the 1 percent that they were already self-reporting on
14 line 2 of their Sales and Use Tax returns.
15 MR. HORTON: Okay. Now it's their argument
16 that they actually paid tax to California vendors on
17 equipment purchases. Is this new information?
18 MR. LAMBERT: This -- this is new information
19 that they provided. Number 7 -- 7 --
20 MR. HORTON: Right.
21 MR. LAMBERT: -- all that information is new --
22 MR. HORTON: All that is new?
23 MR. LAMBERT: -- is new to the Department.
24 So --
25 MR. HORTON: And if the Department was to take
26 this under consideration would that change?
27 MR. LAMBERT: Well, I'd have some questions. I
28 don't know. And I guess my question is --
52
1 MR. HORTON: I mean, let's presume that this is
2 correct, accurate, they actually purchased from
3 California vendors -- they changed their purchasing
4 practices to now buy from California vendors and to pay
5 the tax, presumingly as evidented by this subject to the
6 review of the Department, would that change your
7 assessment?
8 MR. LAMBERT: Well, I guess the question I
9 would ask -- and I -- I don't know all the details. I'd
10 probably need to know a little bit more, but it's
11 possible that that change had already been made in the
12 prior year and that's why you went from 6.5 percent, and
13 actually the years before that were higher than that,
14 down to the 2.6 in 2002.
15 MR. HORTON: Gotcha.
16 MR. HORTON: Okay.
17 MS. NGUYEN: I'm sorry, Mr. Horton, I'd like to
18 also mention one thing, that Macromedia was basically
19 getting acquired. So, you know, if you look at the 2005
20 their purchases, they wouldn't be -- you know, if they
21 were going to be acquired they wouldn't be going out and
22 buying a whole bunch of, you know, soft -- like servers
23 or whatever it is, they'd have to be --
24 MS. YEE: And I think what the Department had
25 mentioned earlier was that there was some consideration
26 made in terms of what was --
27 MS. NGUYEN: Well --
28 MS. YEE: Yeah, I think --
53
1 MR. HORTON: I mean, the challenge we have here
2 is the Department didn't have any books and records to
3 look at. So they used the information that they had and
4 made an -- an assessment. And now you're providing
5 additional information and so we have not been able
6 to -- to -- to evaluate this information and -- and see
7 whether or not it's been incorporated in the implied or
8 actual innate modifications relative to what occurred
9 previously.
10 So, no one's been able to make that decision so
11 I mean we can't make that decision, either. I mean, in
12 the absence of -- we can't do the audit, so in the
13 absence of the information the -- the Department has
14 right now that you've provided -- only right by virtue
15 that their making the decision based on the most
16 accurate information that's available to them. And now
17 we're providing additional information and additional
18 evidence that based on your argument that you're --
19 the -- your purchase -- purchasing practices changed
20 from the prior audit significantly to say that the prior
21 audit information doesn't reflect the current
22 situation.
23 Is that -- am I --
24 MS. JOHNSON: That part -- that's partly true.
25 However, there is no relationship to sales. That's what
26 we're trying to deliver here, the message is.
27 MR. HORTON: Well, we're saying the same thing.
28 We're saying the same thing.
54
1 MS. JOHNSON: But so their percentage is based
2 on sales. And so they want to take that, multiply it,
3 because our sales went up then therefore our percentage
4 should have gone up.
5 MR. HORTON: Yeah, that's -- that's a normal
6 logic. You -- you've changed your practice, the
7 industry has changed because you no longer need to have
8 inventory, you can now send it electronically, but
9 theoretically I mean that's a presumption that could
10 have gone both ways. The auditor could have presumed
11 because now you're -- you're -- you're more technically
12 advanced that you're actually going to acquire more
13 equipment than you would if you were using the hard copy
14 in your old machinery.
15 So -- but the -- but, again, all of this is
16 something that is subject to facts and subject to
17 documents that wasn't available to the auditor at the
18 time. And so now what you might be asking us is
19 to allow you time to provide this information to the
20 Department so the Department can make an assessment of
21 its validity.
22 But, again, I don't want to make your arguments
23 for you.
24 The XYZ letter --
25 MS. JOHNSON: Uh-huh.
26 MR. HORTON: -- did -- was there -- I'm about
27 to ask a question -- was there -- was there a contract
28 on that particular transaction, that --
55
1 MR. LAMBERT: There were contracts, yes.
2 MR. HORTON: And did the contract provide for
3 the transfer of -- of a disk?
4 MR. LAMBERT: It did.
5 MR. HORTON: It -- okay. And -- and so all the
6 evidence indicated that something was transferred?
7 MR. LAMBERT: Not all the evidence but --
8 MR. HORTON: All the available evidence?
9 MR. LAMBERT: We should -- the evidence we got
10 from them indicated that there was a C.D. -- that they
11 had the ability to obtain a C.D. and that the electronic
12 files that they presented us showed that a C.D. was
13 provided and shipment was made.
14 MR. HORTON: Okay.
15 MR. HANKS: If I could provide, also, Mr.
16 Horton --
17 MR. HORTON: Yes.
18 MR. HANKS: -- when looking at these invoices
19 for the -- the sales to the University we note that
20 there's a -- a detailed description of the software
21 that's sold and -- and there's -- there are separate
22 line items that delineate the -- the C.D.s that were
23 provided.
24 For instance with this one invoice I'm looking
25 at it indicates that they're going to contribute three
26 C.D.s with respect to -- to this one invoice. Another
27 relates to software called Free Hand MX Max C.D.
28 provided. Macromedia Captivate Win C.D. Freight
56
1 charges in connection with the transfer and -- and
2 shipping of -- of these C.D.s was $10 in this case.
3 When we look at another invoice I have similar
4 descriptions of Flash Paper 2 Win C.D. English version.
5 Authorware 7.0 C.D. only. Contribute three C.D.s Dream
6 Weaver MX 2004 C.D. in English. Fireworks C.D. So
7 you've got detailed descriptions of -- of the particular
8 software that was supplied under these contracts.
9 MR. HORTON: Yeah.
10 MR. HANKS: And so it indicates that C.D.s
11 supplied, and in connection with all of these invoices
12 we see freight charges --
13 MR. HORTON: Got it.
14 MR. HANKS: -- that presumably relate to the
15 shipment of those C.D.s.
16 MR. HORTON: So to the taxpayer, so there's an
17 employee at the University that's willing to say --
18 MS. JOHNSON: Yes.
19 MS. NGUYEN: Yeah.
20 MS. JOHNSON: Yes.
21 MR. HORTON: -- that that's not true?
22 MS. JOHNSON: He did. He did and he -- and
23 may -- yeah.
24 MR. HORTON: And what's his position?
25 MS. JOHNSON: He's the one that was negotiating
26 the contract and then he probably had his supervisor
27 sign the contract.
28 MS. NGUYEN: So, his position is Contract
57
1 System Technology -- we're like System Technology
2 contract, contract service procurement. He also is
3 willing to -- you know, if you guys want to give him a
4 call and speak with him, he's willing to do that, too.
5 MR. HORTON: No, we don't want to call him. I
6 want to share a conversation I had with Bill Gates. We
7 were at his facility. He was asking for a favor of the
8 Legislature.
9 But I asked him, why don't you just transfer
10 all these things electronically, and he indicated that
11 there's a certain legal benefit in having the hard copy
12 and that there's a certain possessory interest and he
13 went into a whole bunch of other stuff and I just left
14 it alone, after about -- very intelligent guy. I mean,
15 he was just -- but I got it in the first couple of
16 words.
17 I don't know if -- maybe if you -- if the
18 University itself was willing to -- to say that that
19 contract is no longer valid and that there is no
20 contractual relationship because you are -- the contract
21 calls for the transfer of tangible personal property.
22 And generally speaking there's a logic behind it and
23 we're not in the position to -- to second guess what the
24 University was asking for or to second guess the -- the
25 information.
26 But I don't know if the University is willing
27 to -- to put itself off on the limb legally to libel
28 itself. Maybe this individual is, but maybe the
58
1 University is not.
2 But if there was additional testimony where the
3 University said this contract is no longer -- is not
4 valid, this provision in the contract is not valid and
5 whatever obligations your company has relative to that
6 contract are no longer valid because you did not have to
7 comply with that, it's difficult -- you know, it's
8 difficult to -- to impeach the facts subsequent to that.
9 But if you -- maybe you can get us additional
10 information where someone is willing to go that far
11 other than an employee with the -- with the University.
12 But I -- this is not something that I think we can -- we
13 don't have enough information to -- to resolve this in
14 any other way than to rule in favor of the Department.
15 MS. STEEL: Mr. Horton, are -- are you asking
16 them to bring the paper on the University stationery or
17 you are asking for a letter from higher position person?
18 MR. HORTON: You know, again I want to defer to
19 the Department to -- I make that call but what I would
20 say to the Department is, is that if there was -- if the
21 University, itself, and their legal team was willing to
22 say that this contract was not valid or that there was
23 an error in the contract and therefore whatever
24 obligations that this company has pursuant to this
25 contract they no longer have that obligation, because
26 the mere fact that you called for the transfer of the
27 document gives them certain rights in a Court of law if
28 you don't comply. And subsequent rights, if for some
59
1 reason the software that you transferred electronically
2 doesn't work. And so, because that exists I don't know,
3 you know, if -- strike that. Because the mindset
4 exists relative to the purchaser in asking for it, the
5 intent of the parties has been established. So to
6 unwind that has legal ramifications and I don't know if
7 the University would be prepared to go there, but if
8 they would I would suggest that the Department sort of
9 entertain that. MS. YEE: Okay. Thank you, Mr.
10 Horton.
11 Ms. Mandel.
12 MS. MANDEL: Did I have a question for you, Mr.
13 Levine?
14 MR. LEVINE: Well, I think we already have the
15 Department agrees that under this contract if there is
16 not other evidence of delivery of TPP that the
17 Department has accepted that the sale is electronic
18 only.
19 My concern about these, and maybe it's just
20 because I don't understand the facts, is it appears that
21 the person who sent the letter is the person who
22 negotiated the master contract and then perhaps for all
23 of the University system who places orders under that
24 contract with the same terms.
25 So, if that's the case he can state what --
26 what his intent is but he can't state whether Long Beach
27 actually did say send us a backup and so we would need
28 it from the persons involved in the actual transaction
60
1 in dispute.
2 MS. NGUYEN: I just want to say one thing, so
3 California State University, this particular vendor,
4 they're actually the people who, you know, purchase all
5 the stuff for California University. So it wouldn't be
6 where, you know, like say Sacramento State calls them up
7 and say, "Hey, I can't download this, can you tell
8 Macromedia." It's not like different contracts. It's
9 basically this person speaks on behalf of --
10 MS. YEE: System-wide.
11 MS. NGUYEN: -- yes, system-wide.
12 MS. YEE: System-wide.
13 MS. NGUYEN: And he's saying that, "I want you,
14 Macromedia, to provide this platform so I could have my,
15 you know, CS -- my California University IT group go on
16 line and access this information, then download it
17 down."
18 MS. YEE: Okay.
19 MR. HORTON: Well -- Madam Chair.
20 MS. YEE: Yes, Mr. Horton.
21 MR. HORTON: The request of the Department
22 is -- is fair. It seems to be fair, it seems to be
23 equitable. It seems to be easily accomplished.
24 So, as you've been able to -- to get this
25 gentleman to -- to -- to document his intent, maybe
26 there is some way that you can get the University or
27 the -- the decision-makers who made that decision to --
28 to -- to document that, as well.
61
1 I certainly would caution you, which I can't do
2 because I don't have the legal authority, though, but I
3 don't think they're going to do it because of the --
4 the -- the possessory interest that's created when that
5 document is transferred.
6 But if they will, that seems something that --
7 that you can accomplish. I don't know why we're --
8 MS. JOHNSON: Yeah, we would -- we wouldn't
9 mind -- we would do that very thing. We can -- we'll
10 contact this and pursue that avenue.
11 MS. MANDEL: Madam Chair.
12 MS. YEE: Yes, Ms. Mandel.
13 MS. MANDEL: You know, I appreciate that you
14 have this letter but technically it says that he did not
15 receive, and I think that's what the Department is
16 saying. And then he says, you know, it's to the best of
17 his knowledge, information and belief formed after
18 reasonable inquiry.
19 And I think when he says "I," he -- he may be
20 referring, you know, to the University, but he hasn't --
21 he hasn't explained what -- you know, what he did to try
22 to figure out that nobody at the University got it. He
23 just says formed after reasonable inquiry. And if you
24 were normally laying out why you want someone to rely
25 on -- on an individual's statement when there seems to
26 be some con -- potential conflict in the underlying
27 documents they would -- they would go lay out what they
28 did that -- that led them to form that belief.
62
1 MS. NGUYEN: I'd like --
2 MS. MANDEL: So it's kind of a little
3 incomplete.
4 MS. NGUYEN: I'd like to also point out that
5 the -- the Department like the -- DPA, the audit
6 Supervisor and the auditor, you know, he phoned in. He
7 spoke with them. They were able to ask him numerous
8 questions.
9 MS. MANDEL: No, I understand that. But this
10 Board sitting here today has to go off of what we have
11 in front of us. And what we have in front of us is this
12 document. So, --
13 MR. HORTON: I can only speak --
14 MS. YEE: Mr. Horton --
15 MR. HORTON: -- for myself.
16 MS. YEE: -- please.
17 MR. HORTON: If you have the lawyers for the
18 University write a letter that says under penalty of
19 perjury that they did not receive this document and that
20 the contract that was originally drafted is incorrect,
21 it's invalid because it's incorrect and here's an
22 amended contract we want to send over there and so
23 therefore then that's a good beginning.
24 MS. YEE: Okay. Other questions, Members, on
25 this?
26 Okay. Hearing none, is there a motion?
27 MS. MANDEL: Take it under submission.
28 MS. YEE: Motion by Ms. Mandel to take this
63
1 matter under submission. Is there a second?
2 MS. ALBY: Second.
3 MS. YEE: Second by Ms. Alby. Without
4 objection, that motion carries.
5 Thank you very much. We will discuss your
6 matter later today and send you written notice of our
7 decision.
8 MS. JOHNSON: Thank you.
9 MS. YEE: Thank you.
10 MS. NGUYEN: Appreciate that.
11 MS. YEE: Thank you, Department.
12 ---oOo---
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1 REPORTER'S CERTIFICATE.
2
3 State of California )
4 ) ss
5 County of Sacramento )
6
7 I, BEVERLY D. TOMS, Hearing Reporter for the
8 California State Board of Equalization certify that on
9 March 24, 2010 I recorded verbatim, in shorthand, to the
10 best of my ability, the proceedings in the
11 above-entitled hearing; that I transcribed the shorthand
12 writing into typewriting; and that the preceding 64
13 pages constitute a complete and accurate transcription
14 of the shorthand writing.
15
16 Dated: May 6, 2010.
17
18
19
20 ____________________________
21 BEVERLY D. TOMS
22 Hearing Reporter
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